Financial induction for new doctors

It’s that grand time of year where we usher in a new cohort of doctors. To my new colleagues – welcome! Let us ignore the recent furore over financial turbulence in the medical world for the time being. Instead we’ll focus on the fact that you’ll soon enough be enjoying the satisfaction, some of you for the first time, of being paid!

During your two Foundation years you will learn the ropes of hospital life as a doctor with all its idiosyncrasies, ups and downs. In that regard, I think it only prudent that you establish a solid financial foundation too.

When there’s a spare bit of bandwidth not being taken up by learning how to use a fax machine, or which ward clerk’s chair not to sit on, think about working through this financial induction for (new) doctors. You’ll find action points in blue at the end of each section.

Bank accounts

Nothing fancy is required here. Chances are you already have a current account into which you’ll be paid. As long as it has a debit card along with it then you’re pretty much set. It may be worth looking to see whether you can upgrade or change your student account for a graduate account. Some bank accounts offer extra perks for a fee, e.g. Barclays Blue Rewards or the Santander 1|2|3 Account. Although worth looking into, in my opinion these are rarely worth it. Unless you’re on the ball it may end up costing you more than you save.

Some people have multiple current accounts to allocate money for different purposes. For example, it’s common to have a separate account for ‘day-to-day spending’ or ‘fun’ money. This physical separation of cash may prevent you from spending all of your money at once! The FinTech banks, e.g. Starling or Monzo, are often used for this and also have other attractive benefits, such as fewer fees when used abroad.

Some people use old accounts they’re not actively using to reap the rewards of switching bonuses, a moderately time-efficient way of generating small (~£100) amounts of cash.

Make sure you’re getting the most from your bank account(s)

Budgeting / tracking

Along with ‘moist’, the word budget seems to invoke an involuntary shudder in most people. Budgeting can seem laborious, unsatisfying and unnecessary yet it is a vital pillar of financial wellbeing. I won’t give you a detailed run-down on how to make, follow or curate a budget as there are a plethora of resources available online. Some people find app-based budgeting tools useful.

I will, however, suggest that you can start by simply tracking what’s coming in and out of your account(s) each month. Perhaps a simple spreadsheet with two tabs: money in (your salary, any interest you earn on savings, other income) and money out (perhaps split into categories e.g. rent, entertainment, food etc.). 30 minutes on the final day of each month should suffice to fill this out, and build the habit of keeping an eye on your financial goings on. You can embellish it in time if you so desire.

Set up a budgeting and/or tracking system for your finances

Debt

Unfortunately you’re probably graduating with debt, the bulk of which will undoubtedly be your student loan. You may have other debts too; overdrafts, credit cards, car repayments or other loans. I’ll leave student loan debt aside as the answer to “should I pay it back early or not?” is a bit more nuanced.

The interest rates on your other debt, if not 0%, are likely to be astronomical; 10%, 20% or even 30%. It is therefore imperative that you rid yourselves of this financial lead weight as soon as possible. The two commonly described methods are the snowball method and avalanche method. Whichever you choose, the key is to eliminate your debt as soon as is feasible so you can start building your wealth.

Start clearing any non-student loan debt ASAP

Saving

Unless you’re bathing in luxury and going ham at payday parties, it’s probable you’ll be able to save some money each month. The core principle behind saving successfully is ‘paying yourself first‘. It’s universal to have direct debits leaving your account at the start of the month e.g. for rent, utilities or subscription services. It’s therefore wise to set up a similar process for your savings. By setting up a direct debit to a designated savings account you take the process of saving money, and the temptation to spend all of your disposable income, outside of conscious control.

Common practice is to first build up savings equal to ~3 months’ worth of expenditure, to act as an emergency or ‘rainy day’ fund. The question: “where is best to put my saved money?” is difficult to answer. Even the ‘best’ savings accounts and cash ISA’s offer interest that doesn’t match inflation, leaving them poorly-suited for medium- or long-term saving. They are reasonable repositories in the case of emergency funds and for other short-term savings though. For longer-term financial growth think about whether to invest your money instead – I won’t delve further into investing as it falls outside the remit of this basic induction.

Start saving money each month; little and often is better than nothing at all
Make sure you’re getting the best interest rate available
→ Consider investing as a long-term strategy for growing your money

(NB for a full explanation of the different ISA’s available, see here)

A roof over your head

Building a nest egg is all well and good, but it should have a purpose. Amongst other saving goals, it’s possible that you’ll be looking to buy your first property in the not too distant future. Two things to consider are your credit score and the best place to save.

Having a higher credit score is better when it comes to being approved for mortgages, so it’s prudent to start buffing your credit rating early. Experian, one of the UK’s credit agencies, gives examples of how to do so. Part of this can involve getting a credit card. Credit cards can be extremely powerful monetary tools if used correctly, but the ultimate method for financial self-sabotage if not. Get to grips with the basics and use them properly for maximum benefit.

It’s well worth thinking about using a Lifetime ISA (LISA) for the savings earmarked for your house deposit. LISA’s, into which you can put up to £4,000/yr, can be used towards purchasing a property up to £450,000 in value. They come with a free 25% government bonus that is not to be sniffed at. With maximal contributions, your LISA could be worth over £10,000 by the end of FY2.

Take steps to optimise your credit score
Consider using a credit card to help do so
Think about using a LISA to save money towards a house

Expenses

HMRC will be taking income tax (PAYE) from your pay each month. Certainly in F1, and probably F2 too, you’ll be in the lowest rate (20%) tax bracket. It’s still better to pay less tax where possible, so you should claim tax relief on professional expenses. Check the ‘tax’ section of the resources page for a variety of guides on what you can claim for and how to do so. This quick and easy process could save you hundreds of pounds each year.

Other expenses you can claim include money for relocating and travelling to/from work. You claim these directly from your trust, and each will have a different process for doing so, therefore it’s best to contact your HR department about their preferred method. This is money to which you are contractually entitled and can again save you many hundreds of pounds.

Claim work-related expenses back each tax year from HMRC
Claim relocation and travel expenses, where applicable, from your trust

Insurance

The old adage is that you should insure what you can’t afford to replace. Unlike your car, insurance for your life, income protection, home contents, phone etc. is optional. Whether it’s ‘worth it’ is an entirely personal decision and ultimately unpredictable. The best insurance is the one you never have to use.

Consider the need to insure facets of your life, in particular income protection insurance

Retirement

You may have only just started working, but it’s worth having a quick think about retirement planning too. Indeed, you may be tempted to think about financial independence and/or retiring early. I often see questions about whether it’s wiser to opt out of the NHS Pension and use a personal pension (or other investment vehicle) instead.

In my opinion the current NHS Pension (2015), although a shadow of its historic self, is still a reasonable scheme to be a part of as a savings vehicle for retirement. It is also my view that it will be meddled with and devalued in the future, so relying on it for 100% of your retirement income isn’t wise. Don’t just take my word for it though.

→ Inform yourself about both the NHS Pension and other options

Learning

Much as you won’t be a Consultant after you finish FY2, you won’t be a personal finance aficionado after having read this induction. One of the best financial steps you can take is to continue educating yourself – it is only then that you’ll be empowered to make reasonably informed decisions about your financial health.

Throughout the post I’ve linked to other articles that explain various facets of personal finance. Where possible I’ve tried to link to impartial, non-affiliated, government or otherwise neutral sites. There are a whole host of financial media available, be they websites, videos, podcasts, books or forums. If, however, you just want a simple and robust place to start then look no further than the UKPersonalFinance flowchart.

Most important advice of all

I have two final pearls for you. Firstly, a cliché. The best time to plant a tree was 20yrs ago; the second best time is now. Time is money, as they say, so start off on the right foot and reap the benefits for years to come.

Secondly, you’ve survived the gauntlet of medical school and are starting an equally tough journey on the career path of a doctor. Therefore the best thing you can do with your first pay-check is to treat yourself – you deserve it!

I hope you’ve found this post useful; do share it with your new colleagues if so. Be it on the ward or in your wallet, I wish you all the best for the year to come.

TTFN,

Mr. MedFI

Pension party put on hold

There’s a whole host of heads buried in the sand when it comes to personal finance. Unexciting topics such as financial planning for your retirement and the intricacies of pension schemes are only likely to push heads, shoulders, knees and even toes further into the silica. Indeed, pensions are about as interesting as watching paint dry. However, whether you’re aiming to reach financial independence or not, they are crucial to financial wellbeing – so jump into the pensions fray we must!

The government has recently crystallised its plans to change/meddle/interfere/tinker (delete as appropriate) with the normal minimal pension age (NMPA). I won’t aim to explore the why*, but rather aim to summate the what and how this influences you.

State of play

Before diving into the future changes, let’s look at the state of play in the pensions domain. There are four main groupings of pensions in my mind:

  1. State Pension. Accessible at (funnily enough) your state pension age (SPA), which is currently most likely to be 68yrs. HMRC inform me I’ll receive £9,371.27/yr from mine. I won’t embroil us in the ‘will the State Pension still be around’ debate; it’s a story for another time.

  2. NHS Pension (2015 scheme). Accessible at your SPA too, which is currently most likely to be 68yrs.
    If you want, you can claim your NHS Pension early at any age from 55yrs – 67yrs, but suffer a reduction in the money you’ll receive because of it. See Part III of the NHS Pension series.

  3. SIPP (self-invested personal pension). Accessible from NMPA, which is currently 55yrs.

  4. Other DC (defined contribution) pensions e.g. NEST, workplace pensions. Accessible at NMPA, which is currently 55yrs.

Chances are you have at least two of the above pensions. If you’ve worked for the NHS, for another employer and opened a SIPP then you may have all four.

Winds of change

We know how things are. How are they going to change? Time for a, err, timeline…

2010 – The NMPA was increased from 50 to 55yrs.

2014 – It was announced that the NMPA was due to rise from 55yrs to 57yrs from 6th April 2028.

2021 (February) – The government published the results of a consultation regarding this rise in NMPA.

2021 (July) – The government published a draft of the legislation that would bring this into effect.

What does it mean?

This change has no real bearing on the current state pension, although continues the trend of rising pension/retirement ages. Indeed, NMPA will have risen from 50yrs to 57yrs between 2010 and 2028.

The impact on the NHS Pension 2015 scheme is likely to be fairly niche. It could be that it is no longer possible to claim the NHS Pension at 55yrs, where you would have been stung with actuarial reductions anyway, but at 57yrs instead. It may be that one can still claim the NHS Pension at 55yrs. The NHSBSA replied to my query with a succinct:
“Currently we have received no guidance about the increase to the minimum retirement age from 55 to 57. “

The impact on SIPPs and other DC pensions is where the crux of the matter lies. Where previously accessible at 55yrs, it will be 57yrs from April 2028. This is largely going to affect on people who would have been claiming their pension around that time – things will be pushed back a couple of years.

An interesting sub-plot is the potential influence on the lifetime allowance (LTA). Accessing pensions later means (potentially) two years’ more contributions and growth. This may tip one over the edge of the LTA threshold and incur a tax bill, or increase the size of it if it was coming your way anyway.

In the FIRE-ing line

The government’s consultation document notes that “…most people do not now retire at 55.”

Although this implication of this sentence is that people retire later, chances are that if you’re reading this post you may plan on retiring earlier than 55yrs. These changes to the NMPA may well alter your plans.

It might be that your early retirement blueprint was some variation on the theme:

X yrs – stop work and fund yourself by selling investments in a S&S ISA
55yrs – start drawing money from your SIPP and/or workplace pension
60yrs – start using money from your LISA
68yrs – start taking the NHS Pension and state pension

Naturally the changes to the NMPA will impact on this set up. If the plan had been to use investments in an ISA to bridge the gap between ceasing work and starting to draw money from your SIPP, that money will have to last an extra couple of years.

The flip side is that value of your SIPP may not need to be as large, as it’s doing fewer years’ heavy lifting. Contributions that were going to your SIPP could be funnelled to ISA/LISA’s instead, which may also mitigate the LTA issue. There are obvious tax downsides to this, however.

Through the loophole

It all seems fairly cut and dried. NMPA rising to 57yrs in April 2028. Done deal. End of.

Except we’re actually in a window of opportunity to somewhat circumvent this change.

Some people will automatically enjoy ‘protected pension age’ i.e. they will still have the ability to start claiming their pension at 55yrs. Namely, individuals who are members of the pension schemes of the ‘uniformed services’ (a group to which the NHS does not belong despite many of its employees wearing outfits that looks suspiciously like uniforms) will enjoy this benefit.

If you’re not a fireman, police officer or Ghurka, it seems you can still maintain a 55yr NMPA if:

  • You’re a member of an HMRC-registered pension scheme
  • Whose pension scheme rules on 11 February 2021 conferred an unqualified right for you to take your pension benefits earlier than 57yrs
  • And you joined the scheme before 5th April 2023

(NB this is specific to an individual as a member of a particular scheme, it would not apply to all the pension schemes of which you are a member.)

What’s an “unqualified right”? It appears to be where the rules of the pension expressly state that benefits can be drawn from 55yrs. Rules that reference ‘the NMPA’ or the legislation that underpins it don’t seem to count.

Ergo all you have to do to circumvent the planned changes is find a pension provider whose rules, prior to February 2021, stated explicitly that you had the right to take your pension benefits at 55yrs of age. Then either set-up a new pension with that provider, or transfer your existing SIPP/workplace pension into it, before April 2023. Easy, right?

Optimising

To the key question – which pension providers have worded their T&C’s in such a way as to give you an ‘unqualified right’ to take that pension at 55yrs?

The jury is out at the moment. Some big name SIPP providers seem as if they are off the cards in this regard; Vanguard, AJ Bell, Hargreaves Lansdown and Interactive Investor all reference the increase in NMPA to 57yrs in either their T&C’s or FAQ’s. Fidelity may have worded things so as to fulfil the ‘unqualified right’ criteria (credit to MSE Forum user MDMD), but that’s still unclear.

With things so hazy it would be pertinent to wait for the dust to settle a bit instead of immediately transferring your pension(s) to a different provider. A case of masterful inactivity, cat-like observation – you have until April 2023 to execute any changes.

Action plan

If your retirement plans revolve exclusively around the NHS Pension (+/- state pension), this news may be fairly inconsequential for you. A word of caution, however. Changes to pensions are happening all the time – for example some DB pensions will be revalued by a lesser amount from 2030. It would be asinine to assume anything other than the NHS pension undergoing future changes (read: devaluation). A more diverse or multifaceted retirement approach will provide greater shelter from the winds of change.

If your retirement plans involve a DC pension or a SIPP, it seems pertinent to try and have that money in a scheme that will confer on you the ability to take it at 55yrs. It’s a flexibility thing – it makes your money accessible earlier, which could be beneficial. It may be of no material consequence down the line, though in general it’s better to live with ones hands untied rather than bound behind ones back.

TTFN,

Mr. MedFI


* Depending on which parts of the Government’s rhetoric you read, the change might occur to:
…”support the government’s agenda around fuller working lives and has indirect benefits to the economy through increased labour market participation, while also helping to make sure pension savings provide for later life.
…”encourage individuals to save for longer for their retirement, and so help ensure people have financial security in later life.”
…”reflect long-term increases in longevity and changing expectations of how long people will remain in work and in retirement.”

Vindication? Or warning sign?

I recently experienced a personal novelty; an emergency. Though my working life is (sadly) rather replete with the emergent, outside of the four hospital walls I’d never before become unstuck by the vicissitudes of bad luck.

One of my very first posts was about the financial pitfalls of cars, so it was perhaps fitting that the culprit in this affair was my own automotive wallet-drainer. Cars are a modern Janus; dichotomous beasts that both augment your life (freedom to travel, convenience, comfort, status symbols) yet simultaneously detract from it with their polluting ways and by acting as a monetary black hole.

When it became apparent there was a problem with my own mirth-mobile I did what any modern man would do and Googled a home-brewed solution. Low and behold the hacks and quick fixes fell flat on their faces. With little mechanical know-how of my own, and at serious risk of inducing damage rather than repairing it, I conceded defeat and called a mechanic.

As I watched my vehicular Hector being dragged away by the recovery truck it was not the impending financial blow that was most frustrating. Rather it was the faff factor, the annoyance, the inconvenience of a whole chapter of tasks, dates, timings and organisation that would require my attention. The bill did come eventually though…

To the emergency fund!

Most followers of mainstream personal finance strategy would perhaps scoff at this stage. An emergency? What’s the big deal? That’s what the emergency fund is for! They’d be correct. Except, being the obstinate trailblazer that I am, I did not have a classical emergency fund. I had an Emergency Fund 2.0. My own ‘it’s hitting the fan’ strategy resembling a credit shield wall approach. In short, the spongy debt of a credit card covers most emergencies.

The overall fiscal assault of my car troubles, including a painfully long taxi ride to work, broke harmlessly against those credit ramparts. That’s a four- or five-figure sum, X months’ worth of expenses, I have invested instead of languishing in an easy-access account ICE. Indeed, the more I reflect on events the more I’m convinced that, at this juncture, a traditional emergency fund is a sledgehammer that I don’t require. I have a nutcracker that does the job.

Lucky escape?

I’m not so wrapped up in my own comforting confirmation bias that I didn’t recognise a warning sign. My approach to emergency funding is, if not playing with fire, certainly frolicking close to some hot embers.

If I suffer high-cost or back-to-back emergencies I may not have the credit required to cover them. If the emergency cannot be dealt with by credit card, I’m sort of stumped. If there is any aberrancy in being paid that month (as happened in October 2020) then I’m poised to suffer some outrageous credit card interest rates.

The strategy is absolutely fallible. It’s a calculated risk that I feel is worth taking. As my own FI(RE) journey / investing adventure is still in its relative nascency, each little boost to keep the compounding snowball a-rollin’ is invaluable.

Emergency Fund 2.1

Although I didn’t feel financially vulnerable during the aforementioned emergency, I did want to shore up the defences some more.

I concluded that the only way to be absolutely safe from every eventual emergent possibility was to have an unwieldy store of cash, a strategy I’m still reticent to engage with. I thought about restructuring things à la Shrink, with his multi-layered emergency fund that is varied along both temporal and geographical axes.

In the end I decided to double down, a phrase perhaps fittingly taken from the gambling world. Where I had one ‘credit shield wall’ before, I now have two. Two lines of credit, from different providers might I add. The total available credit equates to approximately 10 months’ expenditure. The timing of the repayments is staggered so that they occur as far apart as possible.

Thus Emergency Fund 2.1 was born. It’s not impervious; a castle with a wall twice as thick is still vulnerable to sappers, supply chain issues and other structural faults. The strategy should, however, shield me from emergencies that are either high-cost in nature or occur in quick succession.

1 – 0

I think it likely that there’ll be future iterations of my emergency fund 2.1. Nothing much stays static in the rolling waves of life. I may end up being hoisted by my own emergency fund petard at some point in the future. Until then I’m saving on a rather large opportunity cost. Those savings may well eclipse any potential future costs associated with my alternative emergency strategy so, in the great game of cosmic financial karma, for the time being I’ll chalk this one up as a victory for myself.

TTFN,

Mr MedFI

Why FIRE is no mental health panacea

It’s widely appreciated that financial woes negatively impact the mind, not just the bank balance.

“It is difficult to disentangle the inter-relationship between debt and mental health, but the links are clear” (Mind)

Causality may be murky, but the association is not. Financial turmoil is stressful, detrimental to one’s mental health and indeed even fatal. Take the suicide of an American teenager, who mistakenly believed he was over half a million pounds in debt, as an example. The global financial crisis is further evidence of the lethality of financial stress, leaving a ~5% increase in suicides across European and American countries in its wake1.

The mechanism through which finance is injurious to mental health is crystal clear; debt is firmly in the driving seat2, 3. The more debt, the worse the effect on health4. Those with debt are more likely to suffer mental distress and people with mental health disorders are more likely to be in debt5. It’s a vicious downwards spiral, a negative vortex. It is all too clear how debt can act as a lead weight around the ankles, a heavy burden on shoulders and mind.

It’s no wonder that the task of clearing debt is near the top of every personal finance guide, flowchart or how-to.

Silver bullet

When I first started learning about optimising one’s personal finance, it was readily clear how beneficial it could be for people’s mental health, not just their net worth. As debt is the major player, taking it out of the game would have positive consequences. The stress of debt would be eliminated, replaced by the psychological enrichment of seeing your bank balance in the black. Releasing the mental shackles imposed by debt could also have a synergistic effect on wellbeing beyond the purely financial.

Further down the road from ‘mere’ optimisation of your personal finances, debt clearance, saving money etc., lies financial independence, an end-of-the-spectrum modus operandi that could be an even greater boost for one’s mental health. You’re achieving a financial nirvana. An income optional, ‘set for life’ state. Debt and money worries can be off the table entirely. To double down on the monetary benefits from FI(RE), the absolution from a working life could take away a whole other sphere of psychiatric detriment.

Yes, when I first started reading about the FI(RE) movement I was convinced that both the journey to, and arrival at, financial independence would be a significant shot in the arm for one’s psychology.

The scales have tipped too far

Contrary to my hypothesis, I started to notice a theme amongst the FI literature. There in plain sight was a veritable DSM-5 of negative cognition about finance. Anxiety, low mood, depression, addiction, fear, guilt, neurosis.

The perhaps appropriately named blog Fretful Finance was one of the first to open up. In their post entitled “Do you have a grey dog?” they described their depressive episodes. Although their site is now down, from recollection it appeared that FI(RE) was neither protective against nor curative of their dysthymic periods. It may have even been contributory.

Following this came the Ninja, with a frank piece of introspection in which he self-diagnoses an ‘allergy’ to spending money. The disagreeableness of expenditure ran deeper than mere hypersensitivity, however, as he described a slew of negative emotional states associated with (not) spending money. Envy. Anxiety. Hatred. Fear.

Perhaps most worrying was the transition from the psychological to the physical:

“When experiencing this allergy to spending, it’s not just a preference that I prefer to choose. It’s actually a feeling deep down in my gut, I feel physically sick. “

‘Not buying things’ was heroin. Without it, there was physical withdrawal.

HITG describes a similar array of psychological issues associated with being too work-focussed on the path to FI. Sleepless nights, feeling overwhelmed, obsessing and a degree of self-neglect were all present before she made changes.

GFF joined the conversation, with the astute observation that strict command of the purse strings mimicked symptoms of that disease of control: anorexia. I won’t re-hash his analysis of under-spending/over-frugality, save to copy the most poignant quote: “It’s no way to live your life!”

In the dark corner

Blogging heavyweight The Accumulator entered the ring with their broader view of the mental health pitfalls on the FI(RE) ‘slog’. They describe the mental health punches you can expect the ‘financial demons’ to throw during the twelve rounds to FI, and how one might avoid them.

Acknowledging the indelible marks left by their own journey to financial independence via ‘personal hell’, TA proposes techniques to duck the uppercut of the bottle, swerve the jab of drugs, and counter the haymaker of anhedonia.

Yet victory by knockout and claiming the FI(RE) belt is no guarantee that the mental health issues are behind you. The listless lethargy of purposelessness can be just as psychologically detrimental as the overbearing pressure of work, as this recent post demonstrates. I’m sure that even with activity abound there are significant sources of stress post-FI; worrying that your investments will lose value, that your maths is wrong, that you’ll run out of money, that the unexpected will happen, that the unknown unknowns will sabotage your plans.

What to do?

It’s become clear to me, both from my own FI(RE) journey to date and learning from others, that aiming for financial independence is no mental health panacea. Although it is perhaps not as malignant as indebtedness, FI is certainly not psychiatrically benign. What’s the best way forward then?

I won’t pretend to have the perfect answer for everyone nor even myself. As the prophet Brian preaches: “You don’t need to follow me. You don’t need to follow anybody. You’ve got to think for yourselves. You’re all individuals”.

What I am aiming for is a middle ground. A balance between stringent asceticism and indulgent profligacy. What my grandparents might describe as “everything in moderation, including moderation itself”. The Buddhist middle way.

Enough saving to keep the journey to FI(RE) on track. Enough to keep alight the flame of early retirement, which is certainly psychologically protective against the darker moments of working life. Eschewing ‘kept-up-with-Jones-ism’, seeking value and quality.

Yet also enough spending to enjoy life, to promote my wellbeing, happiness and joy. A burger and a beer with my friends, for example. Or the immeasurable benefit of ad-free music. Simple gifts, as it were.

I’m still finding that balance. I doubt there’ll ever be a concrete number that lies at the inflection of the too-much vs. too-little curve. I suspect my spending/saving will indefinitely oscillate around some ideal value. I do know that 2020/21’s 60%+ savings rate was too much, so I’m resolved to spend more this year (yes, you read such heresy on a FI blog).

Whatever you choose to do, remember to look after yourself.

TTFN,

Mr. MedFI


References

  1. Impact of 2008 global economic crisis on suicide: time trend study in 54 countries. Chang, S-S et al. BMJ (2013); 347
  2. Debt, income and mental disorder in the general population. Jenkins, R et al. Psychological Medicine (2008); 38, 10: 1458-1493
  3. The relationship between personal debt and mental health: a systematic review. Fitch, C et al. Mental Health Review Journal (2011); 16(4), 153-166.
  4. The relationship between personal unsecured debt and mental and physical health: A systematic review and meta-analysis. Richardson, T et al. Clin Psychol Rev. (2013); Sep 10;33(8): 1148-1162.
  5. The Social and Economic Circumstances of Adults with Mental Disorders, Stationary Office, London (2002)

Doughnuts and dollars

Doughnuts are hardly allegorical, though perhaps at a push you could conjure up some vague symbolism.

The ring-shaped doughnut could represent the circular nature of life and death, the inexorable march of time in the universe, the futility but majesty of it all. The jam-filled doughnut is perhaps a lesson in not judging books by their cover.

When I think of doughnuts, I think of the age-old challenge of not licking your lips whilst eating them. What profound philosophical concept is this supposed to embody? Why, the human condition of course.

Distinctly average

With a full set of sweet teeth, the juvenile Master MedFI was no match for said doughnut lip-licking challenge. The adult version is hardly better. Why can neither past nor present me channel the willpower to resist?

It irks me slightly, as I think of myself as someone with a higher-than-normal degree of self-control, who can readily rise to a challenge, or engage in delayed gratification. Therein lies the error.

It’s easy to Dunning-Kruger yourself into thinking you’re supra-normal, whether that’s at refraining from lip-licking or managing money. The latter is especially true in FI circles, where people may overestimate their investing ability due to their greater-than-average understanding of financial affairs. The truth is that we are all subject to the same foibles of human nature.

Being led into temptation

In the world of personal finance, recent times have been awash with individuals raking in profits with seeming wanton abandon. Cryptocurrency, meme stocks, non-fungible tokens or even just the general market rise will have filled the coffers of a fair few.

As wave after wave of fast-rising price graphs filled my newsfeed, I found it difficult to resist jumping on the rapidly ascending bandwagon(s). FOMO rose and rose, filling my brain with temptation like a running tap fills a bath. Resist I did, however, and there’s not a GME share, NFT or Dogecoin anywhere to be seen in my portfolio.

There’s a hindsight-heavy argument that I was erroneous for not getting stuck in; many have profited generously from these ‘investments’. There’s probably an alternate version of me somewhere who bought into the hype and made a killing. There’s also probably a version of that guy who got stung and lost a truckload. I’m content enough with having been largely unaffected by the whole set of affairs.

Resilience or randomness?

How did I withstand the gnawing temptation to ride the cash cow? With dollar signs in my eyes, how did I see straight? How did I refrain from licking my metaphorical sugar-laced lips?

All truth be told, I can’t claim it was down (purely) to steely resolve. Or a long-established investing philosophy that I wouldn’t deviate from. Nor any sort of foresight or deep economic understanding.

There’s probably a sprig of petulance in the mix, not wanting to be part of the crowd. There’s undoubtedly the advice of many other financial commentators rolling around my subconscious, warding me off rash, under-researched or ‘too good to be true’ investments. There’s the sheer lack of cognitive bandwidth as I navigated a series of work-related hurdles over recent months. In other words, it was nothing and everything. It was luck.

Regardless of the reasons, very little has changed with regards to my investing over the past six or so months. I’m intrigued by that temptation though. Who’s to say that I would be able to resist similarly tantalising bait in the future? How can I protect my future self from being lured into making spur-of-the-moment investment decisions?

Empirical itch-scratching

Having some sort of personal investing manifesto is often billed as a key component of a successful strategy. I agree. It should also shield you from errant investing behaviour, though I have my doubts about its utility in the face of significant temptation.

Even if your investing policy is an exquisitely crafted magnum opus that perfectly reflects your financial philosophy, an enticing enough prospect could lead you to betray it. You’d have to be a character with significant self-control to resist the weekly, daily or even hourly news of the latest fad making millionaires from thin air. As doughnuts have shown us most people, myself included, lack that level of discipline.

I thought of other methods that you could employ to try and stop oneself buying into fad investments. Checklists that must be completed before buying a product. Investing budgets that are totally automated, leaving no room for individual whim. Other more elaborate ones too.

Yet there are powerful motivators that I think would overcome any of these conceptual fail-safes. The thrill of the chase in plumping for that fast-rising stock. The same excitement that comes from buying a lottery ticket; the ‘what if’, the daydreams of winning. The fear of missing out making you yearn for that new, niche or fad asset.

Counter-intuitive

Instead of trying to put methods in place to stop making investment choices in the heat of the moment, I wonder whether I could assuage temptation by doing almost the opposite. Rather than being cajoled by the dopamine-craving parts of the brain into buying the latest ‘big thing’, I could make investments now that had greater aforethought behind them but still scratched the cerebral itch. That is, in place of attempting to refrain from licking sugar-coated lips, why not just lick them from the off and remove the desire altogether?

To put this into practice I would buy small amounts of some assets, e.g. cryptocurrency or commodities or what have you, and then use them as a cognitive shield against further rash investments at the time of booming values.

Tempted to buy the newest, bestest, sure-to-make-you-rich cryptocurrency? Ah I’ve already got exposure to that market so it’s less thrilling, less enticing.
Inflation is on the up, how about some gold? Well I already own some so I’m satisfied I won’t miss out too much.
What about this fast-rising share that’s going supernova because Taylor Swift mentioned it in a song? Eh, I already have money that I’ve actively invested in some individual stocks so this latest one is less seductive.

It’s sort of like a series of satellite investments, but with a different rationale. Perhaps a more perverse one. I wouldn’t necessarily be aiming to “minimise costs, tax liability, and volatility while providing an opportunity to outperform the broad stock market as a whole.” I would be playing with fire now, but with oven mitts on, to avoid getting my fingers burnt in the future.

I’m not certain about whether I’ll implement this protective strategy. Knowing how I fare with sugar on my lips, I wouldn’t bet on being able to resist temptation next time around. It’s certainly food for thought; it’s dollars to doughnuts that I’ll feel a similar urge to invest in such a manner again.

TTFN,

Mr. MedFI

Message in a bottle

If you could write a message in a bottle, one that would float down the river of life and be found by your future self, what would you write?

The River of Life, by William Blake. Who knows which direction it will take, how it will meander, or where it will end up.

In wonderland

As I wrangled with this latest cerebral provocation from SQ HQ, my initial thought was of how futuristic a self should I speak to. Tomorrow? Next year? Next decade? Death bed? With the passage of time stretched out in front of me, coming up with a succinct or even broadly applicable statement seemed implausible.

Before long I started down something of a philosophical rabbit hole. Am I even the same person when I wake up each morning? Is the me that’s me only me right now? Is tomorrow’s me a different me?

As is the way with these existential wrestling matches, my brain eventually distracted itself lest it implode.

What could I possibly achieve by typing into the void, sending soft whispers to my future self as vibrations on the intertwined web of alternate realities? Do I even need to be achieving something by doing so? Surely such an exercise is of benefit to the now, the present being, not necessarily the future one.

I began to think of historical cases where past actions were purposefully designed to influence (distant) future ones. I drew a blank. The complexity of life means that, butterfly effect or not, the ripples of today’s actions are often lost in the turmoil of life’s tempestuous lake.

Time capsules sprung to mind as an example of sorts, although I’ve always found the idea of them rather perplexing. The (ir)relevance of our present is dictated retrospectively by the future. Is it our place to assume what will be meaningful, poignant, lasting?

Eventually the amalgam of thoughts crystallised into two contrasting yet complimentary ideas.

Future me

I hope that things are different. Not because things are bad, but because life must be a changing, evolving process. Stagnation is damnation.

Potentially the scariest thought is that the Mr MedFI of 5, 10 or 20 years time is the same person as today. There will undoubtedly be some fundamental values, some core philosophies that don’t change. It would, however, be naïve to think that the accumulation of experience over the years won’t alter things.

How I think. How I feel. How I perceive. How I act. How I am.

If that weren’t the case I’d be concerned. Arriving in the future to find myself with the same schema as today would be shocking. Have I ignored all of the lessons of life, all the learning from others along the way? I expect a distaste for aubergine and a proclivity for making groan-worthy puns may remain. Otherwise the message in the bottle is clear: I hope that things are different.

Future money

I hope that things are the same. I’d admittedly be a bit nonplussed if I landed in the future to find my income was static, and indeed if my expenditure was too. I expect that the numbers will ebb and flow with time.

What I hope remains unchanged is my attitude, my ethos in monetary matters. I would expect that the future me will still see the value in simplicity and flexibility when it comes to financial affairs. To value not the quantity obtained, but the quality that this affords.

One might think that I’d love to arrive in the future and find myself to be financially independent. Yes and no. FI is an aspiration that I believe offers the best long-term, overall balance. It might be that future me holds a different viewpoint. There may come a revelation, a realisation, a renaissance of a more mainstream modality of financial living. Or a different one altogether.

Above all I hope that in the future I continue to recognise how truly wealthy I am, regardless of the number on the spreadsheet.

TTFN,

Mr MedFI

Twelve percent

The past year has given me, and I’m sure many others too, pause for thought about the way we live our lives. In more recent months I’ve engaged in some hefty type two thinking, reflecting on my financial past (its evolutionary nascency) and future (plans for the endgame, or lack thereof). I’ve dwelled on the ‘personal’ in personal finance, the early retirement aspects of FIRE.

It’s sometimes beneficial to ground oneself in the here and now, rather than staring abstractly at the big picture. What of the present? What of the raw, tangible, limbic system-massaging numbers? There will undoubtedly be reams of writing in the years to come on Covid and its impact on our lives. Thinking purely about the pecuniary side of things, how did I fare in the ‘Covid tax year’ of 20/21?

Outstripping

At the current juncture one of the most sensitive measures of my financial progress is my savings rate. I have a target of 50%, which I surpassed by a mighty 12%…

The difference between pre-Covid and Covid times is abundantly clear, as evidenced by the difference in mean savings rate historically (green line) vs. the last tax year (purple line). Indeed, my savings rate exceeded 60% in three-quarters of months last tax year.

One exception was February, where I forked out the better part of £1,000 for an exam*.

The other exceptions were September and October. Thanks to a snafu over at HMRC, my take-home pay was slashed significantly. Turns out they thought I was working as, and earning the salary of, two full-time doctors. Though it definitely feels like the former on occasion, the latter is sadly not the case. After ironing out the creases with the taxman, the remaining months of the year represented a significant savings boost.

In light of a quintessentially static income year-to-year, this increase in savings rate is all as a result of spending less.

I’m reticent to chalk all of the differences in spending up to Covid. Granted some reductions in expenditure are directly linked, for example those related to travelling (-86%), haircuts (-49%) or dining out (-24%). Others come through deliberate action, with less spent on car insurance (-28%), phone contracts (-13%) or the supermarket bill (-5%).

The things I spent more on poignantly reflect the year gone by; a 75% growth in spending on home entertainment and a many hundred-fold increase in money burned on professional expenses.

Consequences

In the immortal words of Austin Powers, “what does it all mean Basil?”

The 12% outstripping of my savings rate target led to a +25% change in net worth. I’m very much still in the phase where it is savings, not interest earned, that provides the biggest impact on net worth. With that in mind, such a dramatic change is no great surprise.

Did the 12% increase in saving come at the cost of a 12% decrease in quality of living? Yes, if not more. It’s impossible to tease apart how much of this effect was:
money-related i.e. not allocating appropriate funds to enjoy life rather than just be a savings machine
Covid-related i.e. life was more bland regardless of spending due to limitations on personal/social activities
employment-related i.e. life was less enjoyable because of increased pressure at work, both from Covid and the requirement to jump through various professional hoops this year e.g. exams, portfolio requirements.

Life in the tax year 21/22 will be (fingers-crossed) less impinged upon by these factors.

If I were to be able to consistently save at a 60% savings rate, it would cut my time-to-FI by a quarter. A tantalising prospect indeed.

A year unlike any other?

Official statistics show that use of the word ‘unprecedented’ has reached an all time high**. Everyone is naturally and perhaps rightfully keen to wax lyrical about how different things have been. On the whole life has seen some significant disruption; certainly at the level of the individual there have been polarising effects on finance.

When it comes to my investments, I’m not convinced that things have been truly abnormal. Take a step back from the microscope to look at things in a broader context. Were the financial movements in 2020/21 significantly different to any other given year?

I made the diagram below using the S&P 500’s price over the past four years. Which one represents the ‘Covid tax year’ 2020/21? Which is 2017/18, where coronavirus was something only virologists might have heard of? Can you guess which graphs represent 2018/19 and 2019/20?

Performance of the S&P 500 index during four consecutive UK tax years (April-April). Graph from Yahoo Finance. NB scale left unadjusted.

If you’re someone who tracks the markets with enough vigour then perhaps you know the answers. To me they all share the same characteristics. General positive progression. Dips of differing degrees at varying points. With the exception of year A you’d have made a positive return on investment in years B, C or D, but suffered some volatility along the way. I appreciate that the performance of the S&P 500 is not the only marker of the state of the financial world, but it’s a nice way of demonstrating my point.

There will often be something unique and sensational happening in the (financial) world, driven in part by media furore and increasingly by the bandwagonism that is a natural consequence of increasing access to financial tools and material. For example the rise and rise of Bitcoin, or people flying to the moon on a GameStop rocket ship.

It’s easy to feel that current happenings carry a real significance going forward. If we look back at years gone by how many had (what appeared to be) noteworthy events that are now just minor blips along the inexorable march of progress? Will we see the events of 2020/21 as truly significant next year? In five years? In ten?

Answers
A – 2019/20, featuring a ~35% dip due to the ‘Covid crash’
B – 2018/19, featuring a ~20% dip due to the ‘cryptocurrency crash’ before recovering
C – 2020/21, featuring a ~50% rise in value; anyone could look like an investing deity by simply being in the game!
D – 2017/18, featuring a ~20% rise before a ~10% fall.

Keep the change

It’s not impossible that a similar trend in my savings rate would have emerged in the absence of a global pandemic, although perhaps not to quire the same extent.

Despite my skepticism about how truly different this year has been, I am treating it as an outlier i.e. not using it as the basis of any strong conclusions or changes in habit. I’ll keep my savings rate target at 50%. I’ll stick to a passive investing, equity-based plan. I’ll keep simply plodding along, Diplodocus-like, on the road to FI.

TTFN,

Mr. MedFI


*Insert much grumbling. At least I’ll see the VAT back.
**Statistics may be anecdotal and hyperbole applied.


Learning

Our lives are too short to be able to learn everything through our own experiences.

A degree of how we behave comes from lessons learned through the experiences of others. Assimilating these lessons into our own schema is a process; listening, reading, empathising, weighing, reflecting, adopting or rejecting. Second-hand experiential learning is an invaluable skill.

Don’t mistake my sentiment as an advert for blindly following what you read or hear. Due diligence is…well, due. But those who can hone said skill will be able to act synergistically by marrying together the auto- and allo- experienced.

Investor behaviour in a market dip is the perfect example. How should you behave when your numbers start falling for the first time? You have no personal experience to draw on. Those who are able to critically appraise and then follow the oft-repeated advice of not selling are likely to profit. Those who haven’t been able to glean this lesson from others may end up learning it themselves (which is no bad thing, though perhaps fiscally sub-optimal).

More than a number

This month I’ve been reading the decumulation blueprints on offer over at SQ HQ. What can I learn? Which parts of peoples’ plans resonate with me, reflect my values, match my ambitions? Which aspects, ideas or goals should I co-opt to adorn my minimal viable plan? This isn’t obsequious adulation or imitation of others. It’s integration.

At the time of writing there were posts by fourteen other authors. I admire their variety, ranging from meticulous intricacy to broad sweeps of the FI brush. The theme of these heterogenous plans is unsurprising; finance, money, assets, quantity. All-in I classify the majority of them as being mostly or entirely numbers-based.

What stood out, however, was how few described their non-financial intentions for the long, work-free, financially independent glide path. Where were peoples’ plans for their free time, for maintaining joie de vivre, for optimising life’s quality? Although by no means the only post symptomatic of this, FI UK Money encapsulated the notion perfectly:

“I don’t anticipate any problems on [the behavioural] front as we both work for ourselves and are self-sufficient in many respects. We don’t have any trouble filling our spare time out of work and we are looking forward to a less hectic existence.”

A Chat with Kat seems to lend suitable weight to this aspect of the endgame in her seedling plans, though undoubtedly the stand-out post is Living A FI‘s tour de force on his life since becoming financially independent. It’s rich in experiences we can all learn from.

Perhaps there’s an erroneous expectation on my behalf – articles on decumulation are naturally going to be finance-focused. Perhaps it reflects a difficulty or unwillingness to articulate the more personal, emotional or nebulous aspects of retirement plans. Perhaps focusing on the cold, hard numbers is easier than sharing desires, dreams or aspirations, or facing up to the reality that FI(RE) won’t quash all of life’s difficulties.

There appears to be this supposition that shedding the 9-5 will bring about an automatic, indefinite increase in quality of life. This seems a truly erroneous assumption to make…

FIRE burnt out?

2020 saw a ripple of discontent in the FI blogging sphere; a communal pause for thought. There was a slew of commentary on the merits and sustainability of a post-FIRE lifestyle.

I’ll refrain from too detailed a dissection of the issues that arose, but themes included redundancy, boredom, social isolation, purposelessness, status anxiety and the arrival fallacy.

Self-doubt…
GFF decides FIRE isn’t for him
• Indeedably ponders being stagnant, and short-sighted
The Accumulator expresses his FIRE fears
The Ermine thinks about working again
Finimus describes the slide from rejuvenation to ennui
Fire and Wide shares warnings of the post-FI reality

The timing of the early retirement reality hitting home seems variable. Blog-based evidence would suggest at three to five months things are still rosy, but a few years post-RE the symptoms of disaffection begin. This is no taboo or secret; other authors have provided insight on how it might be avoided.

When describing successful early retirees, Sassenach Saving summarises: “A common theme of each of these stories…[is that] most of them retired to something else. They didn’t simply quit a 50+ hour per week job with no plans for what comes next.”

Early retiree Bully the Bear reflects that “If we don’t have a meaningful outlet to pour our life’s best work in, we’ll never end up free, regardless of whether materially we are financially free or not.”

Lessons

What have I learned?

Articulating the post-FI(RE) ‘activity’ plan is difficult, but assuming everything will be better once the 9-5 shackles are off is folly. Nobody can predict life’s vicissitudes – the issue with financial independence is that you are predicating your plans on the notion that your future life mirrors your life of today. Returning to work, for reasons financial or otherwise, is not wrong or bad. If, however, avoiding undesired or unintentional changes in lifestyle post-FIRE is the aim, then one’s planning must incorporate a degree of malleability.

Driving at high speed and then slamming on the brakes risks setting off the airbags. Coasting to a stop seems like a better strategy. Tapering work, rather than sudden cessation, will facilitate adjusting. There’ll be a sweet spot between ‘all work’ and ‘no work’. A working-wean can help discover where that optimum balance lies. Evidence from the Blue Zones suggests that purposeful work contributes to longevity; a planned, meaningful pursuit will be both beneficial and necessary.

Early retirement discontentment is common and strikes after a couple of years. The initial satisfaction is derived from free time, a lack of work commitments, time spent with family/friends, exploration of other hobbies etc. Eventually this is replaced by frustration, ennui, anxiety and feelings of inadequacy. At the point of reaching FI, a 1-2 year sabbatical could instigate the initial benefits. Returning to employment in a more limited capacity, followed by the aforementioned gradual reduction in workload, might mitigate the onset of the detrimental aspects of early retirement.

None of these lessons will grossly affect my MVP. Indeed, they are mostly in keeping with my existing philosophies – simplicity, flexibility, resilience and a focus on quality.

Overall the lesson remains clear: financial independence must be permissive, not definitive.

TTFN,

Mr. MedFI

The MVP

When I first decided to start investing there was an information overload. Which platform? Which funds? What asset allocation? How much to contribute? Pound cost average or lump sum?

The desire to make things ‘perfect’ from the off was overwhelming. Guaranteed decision fatigue. You may well have felt the same.

Eventually I decided that I didn’t need a perfectly crafted investment portfolio from the outset. What I required was an MVP – a minimum viable plan*.

I chose a platform and an equity fund. I invested an amount (probably ~1% of my net worth at the time) and got the ball rolling.

The goal way back then wasn’t to optimise returns or reach peak investment efficiency. It was to overcome the initial trepidation that comes with one’s first foray into investing. As someone naturally cautious, and taking heed of the many, many “capital at risk” warnings, greasing the cognitive wheels enough to overcome this initial friction was the most important factor.

My MVP at the time could have been called ‘Just. Start. Investing‘.

I didn’t have a plan that covered the next two weeks, let alone the months, years and decades ahead. Of course, since then I’ve tinkered as my knowledge has expanded and my goals have become clearer. The key, however, was simply taking that very first step.

FIREproof planning

It was a similar story when I discovered financial independence; there were a formidable array of considerations to take into account. FI numbers. Savings rates. Asset allocations (again). Finding the optimal strategy for that sweet, sweet early retirement. As before, trying to craft a bulletproof plan that would satisfy all these different factors would have been paralysing. Perfection from the get-go was equally fallacious this time around.

In perfection’s place was another MVP. Something along the lines of ‘widen the income-spending gap.

There was no £500,000 or £1,000,000 goal. No savings rate target. No stringent investment criteria. No seismic shift in behaviour.

Of all the factors that would influence if, when and how I could become financially independent the most apposite was (and to a large extent still is) how I much I saved each month.

There was the objective, the MVP. Increase the difference between what’s coming in to the bank account and what’s leaving it. It doesn’t matter if it’s a 0.5%, 5% or 50% change. Just get the ball rolling.

As with my investment strategy, answers to some of those FI questions have crystallised over the course of time. I have a savings rate I hope to achieve. An asset allocation I stick to. A (very ballpark) FI number.

Crystal ball gazing

There are another set of questions to answer that pertain to the FI endgame, the decumulation phase. At what net worth can I pull the FI trigger? How should my asset allocation change once I reach that figure, if at all? What should my SWR be? How will I fill my time if not with employment? Will my expenses remain static indefinitely?

Answers to these questions are mired in the fog of the future. The paths I might take fan out from today like the tail feathers of a peacock, tendrils of future life spreading into the aether of spacetime. How can I predict what the Mr. MedFI of tomorrow will need, want, value or prioritise?

Can there be an MVP in the face of such uncertainty? ‘Masterful inactivity‘. That’s the MVP. That’s the current decumulation strategy; no real plan at all. Be aware of the need to plan, but leave the actual planning for the future. Don’t get distracted, delighted or dismayed by predictions that are based on (too) many instances of ‘if this then that‘, over timeframes spanning decades. Don’t straight-jacket the future me in the guise of the present me.

Perhaps my faith in this intentionally procrastinatory MVP is naive. Fail to plan, plan to fail? Should I keep my eyes on the FI prize or on the FI ball? I’d go cross-eyed trying to do both to a high degree. Perhaps the future Mr. MedFI will curse his past self’s lack of forethought. Perhaps it won’t make a blind bit of difference. Whether I drawdown using plan A, B or Z won’t affect my behaviour of today, so is there merit in having anything more than an MVP?

TTFN,

Mr. MedFI


*My own bastardised version of the term ‘minimum viable product‘, as applied to personal finance.

The Con Is On

Readers of a certain vintage may remember the BBC’s TV series ‘Hustle’. A team of con artists, led by affable frontman Mickey Bricks, channel their inner Robin Hood to steal from wealthy, immoral or otherwise unsavoury ‘marks’ …and keep the money for personal gain. I previously lamented my lack of income diversity. How best to address this? Merely through more hustling? I’ve jotted down some thoughts as I puzzle how best to diversify my cashflow.

Every day is hustlin’ day

People love the idea of a side hustle. A little bit more work for a little bit more money. Financial, if not also psychological, resilience against ‘the man’ and their 9-to-5 whip.

Some side hustles are the adult equivalent of a paper round. Others are fully fledged business ideas. A few are totally left field, such as GFF’s (tongue-in-cheek) buy-to-let pets. The financial forums are littered with posts about successful side hustles. Couldn’t I just pick one from the list, ‘do it’ and watch the bank balance burgeon?

For starters there’s a publication bias afoot. You less frequently hear about people’s calamitous failures at side hustling and the lost money, energy or time involved. ‘He who dares wins’ and all that jazz, but at the moment I needn’t risk being one of the losers.

Further doubt comes from the temporal aspects of a side hustle. If I think about the time I already spend keeping my professional plate spinning, it leaves little left to get a second one up and running. Perhaps these feelings will change in the future and I’ll pick up a suitable second source of income. For now, however, I think I’ll park the idea of putting significant resource into generating a consistent cashflow from a side hustle.

Something for nothing

If a well-working side hustle can be a cash cow, then passive income is more of a golden goose. I won’t debate the semantics of whether any income can ever truly be passive, but the idea of generating cashflow without any ongoing input is tantalising indeed. It definitely circumvents my concerns that a side-hustle would be too time consuming.

All I need do is come up with a suitable idea; haul the income-generating ball to the top of a hill, give it a little push and… voilà!

Perpetual motion? Perpetual income? Friction is a stickler and there’d undoubtedly be some bumps along the way that would require more time and energy. That, in addition to the initial ‘activation energy’ getting the ball rolling is enough to be off-putting at present.

Dividends

I read with fair interest about others’ dividend investing strategies. Some have managed to generate enough cashflow from dividends to cover the majority, if not all, of their living expenses. This is worthy of applause, but a strategy not without risk. For example, 2020 saw the hyperbolically named ‘dividend black hole’ appear, with hundreds of companies reducing or ceasing dividend payments.

Issues putting me off dividend investing:
• Time to find dividend-generating shares
• Cost of buying individual shares
• Risk of share underperformance vs. alternatives
• Potential CGT (if not in ISA)
• Increased complexity of tracking investments
• Cost of not re-investing dividends
• Fluctuating dividends due to economic environment

I wonder about the long-term cost/benefit trade off when it comes to dividend investing. Do dividend investors end up ahead at the end of the financial rat race? Who knows.

I certainly feel that it would require energy, add complexity and potentially reduce returns in a fashion that’s unnecessary for me.

Finance through finance

Monetising MedFI would be a potential money-spinner, but would definitely clash with my blogging values. I don’t want the aesthetic cluttered by invasive, garish adverts (the content of which I mightn’t be able to control). I don’t want the choice of topics, frequency of publication or other factors to be outside my sole control or swayed by the idea of making money. It’s an easy no at present.

‘If you’re good at something, never do it for free’ – Heath Ledger’s ‘The Joker’

What about turning my personal finance hobby into an income? I’d need to do some training, sit some exams (and by god do I have enough of these already) and earn some qualifications in order to be a bona fide ‘financioso‘. This won’t work right now for the same plate-spinning reasons as earlier. I’d also worry that the transition from hobby to profession would poison the interest I have in the field.

Shortcut?

The driving thought behind my quest for income diversity was that I risk a total cessation in cashflow if I’m unable to practice medicine. Re-examining this unlikely possibility, it seems that a drive towards income diversity necessitates using a chunk of my precious free time and energy:

“Give up free time now to do more work now to earn money via a different cashflow to protect against potential future calamity.”

It sounds imbalanced to me.

I think at present the con is on when it comes to income diversity. A deception. A distraction. Stealing time and energy away from other important facets of my life. An alternative way of increasing income diversity would be to abolish the need for an income entirely i.e. financial independence. Perhaps I should remain focussed on that, instead of being hoodwinked by engaging in cockamamie schemes to generate alternative cashflow.

TTFN,

Mr. MedFI