The recent tax year-end prompted me to review all my spending. Somewhat arrogantly, I had thought I was in pretty good shape, but it seemed as good a time as any for a once-over just to be sure.
Time to step away from the head shot and visit the full length mirror, if you like. A few extra pounds around the middle can turn into a death sentence for your financial independence plans if left unattended. Best to blitz that fat early on before it becomes several layers deep.
On first glance, the silhouette was lean and sculpted. No obvious lumps or bumps have crept in unnoticed. But getting close and personal, I noticed some expense lines that have been ignored for the last few years, having being considered essential. Like stretch marks of life – a necessary evil that accompanies having a family and taking care of yourself.
Protecting Before Investing
One of the cornerstones of personal finance is protection. Financial advisers commonly suggest “protecting before investing” – prioritizing security over investment. But does there come a point where this no longer applies? When we accumulate enough wealth are we effectively self-insured?
“You don’t buy life insurance because you are going to die, but because those you love are going to live.” – unknown author.
As a single parent it has been important to me to have my own life insurance policy in place. If anything were to happen to me while the boys were still dependent, I wanted to make sure they were covered financially and could have a similar standard of living as the one I would have provided.
They are now both teenagers – still dependent on me but with less years on the horizon until they are standing on their own feet (she says, optimistically 🙂 ).
Since I took out the policy I have moved job and now work at a company that provides a policy of its own – 4 x my salary paid to my dependents should I die whilst I still work there. Add to that the nest egg I’ve built up over the last few years and considering I’m around 3 years out from FI, I have a pleasantly positive net worth. All things considered, I think I would be leaving the boys well provided for. If I were to die right now, they would be quite wealthy. (Odd that I don’t feel wealthy – guess that’s a post for another day).
In a few year’s time when I quit the day job, that company payout will not be available but the nest egg will be bigger. If it’s enough for me to live on for up to 40 years of retirement, it’s enough to give them a good start in life.
My quest for financial independence has made the personal life insurance policy redundant. One recurring monthly expense scrapped – and with one easy swoop pounds are shed!
(If only weight loss was that simple, sigh…..).
Uncomfortable Thinking
The next part takes a bit more thinking about. This is something nobody wants to consider for themselves but what position would I be in if I were to have a serious accident or illness? I currently have a policy that would pay out a sizeable lump sum. I have kept this policy for many years and have avoided thinking too hard about it for reasons I can only describe as completely irrational. A voice in my head telling me that the minute I cancel this one, something hideous is going to happen.
Looking at it logically, the purpose of this policy is to provide for myself financially if I am unable to work long term. A few years ago, when I had a large mortgage and little savings and investments, this was really important for my peace of mind. But again – as the nest egg has grown, is it really necessary anymore? This cover is not cheap – it’s £1200 a year I could be funneling into my investment accounts instead. And I only plan to work for another 3 years or so, so in the whole scheme of my working life, that’s a small part of income lost.
Heaven forbid, should one of those things befall me, I think I would be ok financially. While I am still employed my company provides cover which would pay out 75% of my salary until age 65. And once I have reached financial independence, I am not reliant on being able to work any more. I am effectively self insured.
Time to pull the plug on this one too.
That’s two monthly recurring payments eliminated – cause for celebration!
And The Moral Of The Story Is…
Let’s be honest, insurance is not an interesting topic. There was no way to make this post riveting reading. But there is a point to the story.
When I discovered early retirement was actually within my capability I was ruthless with expenses, cutting out anything unnecessary and scaling back on the luxuries. But no matter how optimized I think my expenses are – life moves on, circumstances change and what was once essential can easily become obsolete.
As stupid as it sounds, cancelling those policies does feel a bit like tempting fate. But at the same time – it feels good to know I have it covered. I am my own insurance company. And just to keep those niggling thoughts at bay, I’ve decided to use some of the expense saved and spend it on my health – time to get back to those exercise classes. Body Attack and Body Combat – here I come!
Join the Discussion
How often do you review your spending and really think about every line? What have you found that has become obsolete spending? Do you have any irrational thoughts that cause you to spend more than you need? Let me know in the comments.
FIREthe9to5 
Due to a divorce with a small child, I had to get a second life insurance policy. As my daughter got older and is not out of school and working on her own, I was able to relive myself of the monthly burden of that life insurance payment. My second policy is a term life insurance policy due to end in a few years. That was to cover our mortgage in case I died. We no longer own that house, nor do we have a mortgage any more. So I will not be renewing that policy. Instead, I have put aside money and invested it to cover my funeral costs. My wife has a good job and is self-sufficient, so the life insurance is a moot point in our household. Long term care insurance is a totally different story.
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Hi Dan – yes, once the dependents are gone things become a lot easier to cancel. Thanks for visiting – look forward to interacting with you.
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I’m new to your blog, but am enjoying reading it
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I have this dilemma kind of. I work for an insurance brokers and we were offered a new benefits package. Ultimately for me i would have had 1%extra paid into my pension but would have had to give up my permanent health insurance from 75%down to 65%. I have chosen to stay on the old benefits package for now as my mortgage as 284k is just over 3x salary so ultimately that extra 8k a year would be needed at presentif i am to keep the house . I already contribute about 19%of my salary including employers 5%so the extra 1% while we all know will be alot in a few years i would prefer the security. It may not be rational as my net worth if I were to have to sell up would be around 400k so if be perfectly comfortable. But i like my house and don’t want to. Be forced to downsize. I have cancelled my boiler and plumbing cover though which was over 300 a year as i have 15k in cash so don’t need to worry about emergencies so much. I’ll find a local plumber to do the service
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I think I probably would have done the same in your position. Sounds like a good company and your pension contributions are high already
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Yeah its a difficult one. I don’t have any dependents apart from girlfriend but would probably have to sell house if i got sick at 65%
Congrats on only being 3 years out that’s amazing. What age will you be then or is that rude to ask a lady😁
You don’t talk actual numbers on your blog do you? I.e what your number is for fire
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I’ll be 49 if I can do it in 3 years. Anything could happen but even if it gets pushed a year or two, that’s still fairly early. I just wish I’d thought about all this years ago – I could have been there by now.
I haven’t talked about my numbers yet – I’m thinking about it but then I worry that someone I know will realise this is me and that feels a bit exposing if you’ve put all your numbers out there.
Jury is still out on that one!
I don’t have expensive taste though – I’m aiming for a comfortable but not lavish lifestyle.
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Yeah i dont think there’s a right or wrong. Itd be useful to readers. Well me anyway as i reckon i may be aiming too high for what i need
Maybe wait until you’ve left. Then it won’t really matter if someone recognises so much?
For me im 37.and id like to be 50 to 55. I earn about 90k a year gross including car allowance and rental from a room i rent out to a work friend. Divorced 3 years ago which put a dent and left me with a largish mortgage
Work contributes 5% to my pension.
Im aiming for a million outside of property which i hope gives me 4ok a year. I’ll then concentrate on paying my mortgage off. Currently have 150k in pension. 200k in equity and 60k in savings and investments and have fixed my 280k mortgage last year at 2.5% so have decided to stop overpaying on this and invest the money instead which feels weird but I think is the right decision with the interest being so low.
Currently aiming to increase my non pension savings but its a difficult balancing act between saving tax on pension and having savings outside of this while enjoying travelling and perks now. Also some short term spending plans like replacing my expensive bmw lease car (570 a month🙈🙈) when lease runs out with a second hand car, and replacing our kitchen which will be a big expense that i can’t bring myself to spend atm .Once I get rid of car that will help
I save 15ka year into a pension and 5k into share save schemes. Then 300 a month into a s and s isa and probably another 300 in cash. Feels like I’ve got the balance about right.
Im not including girlfriends savings or pension or inheritance in my plans so i view these as a bonus
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I’m not aiming for as high as £40k. I’ve been tracking my spending for years and I realised that I spend less and less as I get older. I just don’t want as much and don’t get anywhere near the same enjoyment from buying “things” that I used to – you may find the same and then you won’t need as big a pot.
Sounds like you have a good balance at the moment, so if you’re in no desperate rush to quit work you’ll be fine.
Just rough calcs, based on your £150k plus £30k from your other savings and the £2k a month you’re adding – over 13 years @ 7%, would put you at £871k – pretty impressive! You’ve got plenty of time on your side too.
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Yes I’m not a big spender on things. Ive got the house i wanted a 4 bed semi worth about 500k. I should downsize really but do want children at some point and my savings rate will probably take a hit then!
My biggest thing is travel and will want to do this for as long as i can. And if i can do long haul in comfort so much the better 😉
Yes I’ve been assuming 5% return but my pension and investments are 100% equity (tracker in aegon for my pension) and my investments are 27k 100%lifestrategy plus about 10k in p2p earning an average 8% and the rest in high interest cash accounts (plus the Saye) so all but the cash is growing above 5%. Im also due a 40k retention bonus in January 2020 which will all go in my pension so will be up above 200k which will be nice. The compound interest alone really starts to make a difference once you hit six figures doesnt it. Im unusual I’ve always saved in my pension from being 18. I had a fear of being poor in old age and wabted 100k in my pension. Its amazing how quick its reached that level i dont know anyone else my age who has anything like that. Most of my pension was built on a salary of 30k or less so i will be interested in how quickly it rises now i earn good money. It’s why I’m trying to slowly build more investment outside of pensions so I can put more in my pension and use dividend income to support my pay.
I’m also going through a stage of feeling quite burnt out from work and get very anxious. It’s something i need to work on. Work are being pretty good offering to fix my salary (I’m paid as a % of my customer base atm which is great in one way as i just get increases every year without having o negotiate but means i get very very stressed when i lose customers) and reducing my work load by taking clients off me. I may be sacrificing future earnings but the lower stress is worth it I think. I earn ‘enough’. I realise i should be just going for it at my age but like i say i feel a bit burnt out. Your mental and physical health is important. Ive forgotten that for a long time
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I can identify with that burnt out feeling – I have the same. I stopped chasing promotions in the last couple of years because I realised I earned “enough”.
The only thing I’d say is – I wish I hadn’t put as much into pensions and put more into ISA’s over the years. I know the tax benefits and everything, but if I’d spread my payments a bit better between the two, I could have got out quicker. Not enough of my pot is accessible until I’m 57. At your age – it may even be later by the time you get there.
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Yes I’m conscious of this too. Aiming for about 300k outside of pensions. I could take the 40k as a bonus outside of pensions but the thought of losing 13k of it to tax brings me out in hives. I got a 20 k retention bonus last year and took half and paid half in to pension. I’ll get my pension to half a mill then concentrate on isas I think
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Nice post, 3 years out from FI…. i’m jealous 😉
But yes, i completely agree, our goal is to get to a point where we can insure ourselves as well, and cut out all these extra policies which we definitely need at the moment
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Well….3 years ‘ish all being well. Anything could happen between now and then that could push it out further.
We are all envious of people further along – I feel like such a late starter and am jealous of the people who are already there. We need to be careful not to wish our lives away!
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So true, everyone’s journey is personal. There are just so many overachievers in this community, sometimes it’s hard not to get carried away
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You make a good point that no matter how clever we think we’ve been with optimising our expenses, circumstances change. We lived in Germany for 12 years and as a society Germans really like insurance for everything imaginable. Since we didn’t know any better we went along with it and took out loads of insurance policies. We were bulletproof! But then a year ago when we were getting ready to move to Romania we had to cancel pretty much all of the insurance policies because we had to be resident in Germany to qualify. As you might have guessed, Romanians aren’t as big on insurance as Germans. People here just don’t take out insurance for that many things. And since the move we’ve realised that we don’t really need all that insurance either. It’s been quite liberating!
As for other expenses, I just noticed that ours are creeping up and I need to do a full audit on where it’s all going – eek!
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Yeah, the expenses do have a habit of creeping up – I’m guilty too!
Interesting comparison between Romania and Germany – I think sometimes we get scared into taking so much cover that we don’t need
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Because we were on a low income we never took out too many insurances and these were reviewed reasonably regularly as circs changed. Mortgage life insurance paid off as soon as mortgage was. We took out life insurance on hubby but not myself as I had the 4 x salary cover by employer. We stopped hubby’s life insurance once we had similar lump sum in savings, which coincided with reduced family costs.
However I took forever to change my mobile phone plan and still haven’t negotiated a better deal with our cable provider. Financial reviews are definitely worth doing regularly.
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I agree – I probably don’t do them as often as I should. I also think we sort the big ones and let the little ones go unnoticed sometimes, like the phone contracts. Which is the right way of doing it with limited time and energy. Do we beat ourselves up too much for not having everything perfectly optimised?
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Hi
It’s not always the first thing that we think of, but if you forego £9 a month in savings for ten years, it adds up to over £1,000 without any investment growth.
Also have you looked at top cashback? There can be some great bonuses for doing what you would do anyway, recently got £80 for changing energy suppliers to the company I was going to change to without the cash back. If you are interested, please send me a message through my blog as I get a referral fee (sorry about using this comment to advertise, and I will understand if it doesn’t get approved)
The original post about insurance is very valid, but it is important to ensure you make the decision based on a logical thought process as the answer is different in varying circumstances (as the original post and comments do point out)
Best Wishes
FIUK
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I do use Top Cashback and also Quidco is good. I haven’t noticed the referral schemes though – I will take a look, thanks.
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